Acquisition target selection and technological relatedness: The moderating role of Top Management Team demographic faultlines

We investigate why some acquirers value targets' technological relatedness (i.e. similarity and complementarity) more than others. We propose that the importance of technological relatedness as a target selection criterion is influenced by the extent to which an acquirer Top Management Team is divided into subgroups based on managers' demographic characteristics (i.e. faultlines). That is because an acquirer Top Management Team's understanding of technological relatedness depends on the team's information processing capabilities, driven primarily by Top Management Team faultlines. Our analysis of 94 realized acquisitions among 2082 potential acquisition matches in high-technology industries shows that while both technological similarity and complementarity increase the likelihood of an acquisition match, only the impact of technological complementarity is affected by Top Management Team faultlines. Specifically, we find that Top Management Teams with moderately strong divisions between subgroups pay more attention to technological complementarities between their firm and potential acquisition targets than Top Management Teams with very strong or weak divisions.